Neptune Orient Lines (NOL)

[Nick]

I think the Edge magazine this week did a write up to explain NOL reason to purchase new ships: Cheap financing, replacing ships that are chartered with the new ships if demand does not picks up and maintain market share.

But true enough, anyone know how to short these companies? haha. I would be keen to explore mid term (2-3 years) put options on container shipping companies.

Same here for the putties. Nobody is ordering much dry bulk vessels...perhaps with the exceptional of the mammoth vale-max which will pressure capesize rates even further.

[karlmarx]

like many of you, i was not too impressed with nol's recent change in management. even more questionable is the huge capex it plans to make. given that container volume and freight rates are projected to only be 'stable', with no known catalyst for growth, this huge capex spending appears unnecessary. in addition, nol's ships are not that old to be require replacement. new CEOs normally come in to cut cost. this fella come in to make such bold and seemingly foolish expansion plans.

right now, dry bulkers have a much better long-term value proposition, especially those with long-term charters. the bdi will start climbing again once all the supply has come onboard in 2 years' time, assuming moderate global gdp growth. when these charters expire, ship owners may be able to recontract at the same high rates four years ago. container vessel rates might come under pressure when the current orders are delivered in 2 to 3 years time.

[Musicwhiz]

Ouch.

Business Times - 01 Nov 2011

NOL in the red in Q3; sees full-year loss

Q3 loss of US$91.1m blamed on rising fuel costs and weak freight rates

By MICHELLE TAN

NEPTUNE Orient Lines has chalked up a net loss of US$91.1 million for the third quarter ended Sept 23, in contrast to a US$282.3 million net profit a year ago, on the back of burgeoning fuel costs and lacklustre freight rates.

Revenue declined 9 per cent year on year to US$2.2 billion. But cost of sales rose 8 per cent to US$2.1 billion, mainly due to higher costs associated with larger volumes and rising bunker-related expenses.

Correspondingly, gross margins fell significantly during the quarter to 5.6 per cent from 20.5 per cent a year ago.

Net loss per share came to 3.53 US cents, compared to earnings per share of 10.95 US cents previously.

For the nine months ended Sept 23, NOL registered a net loss of US$157.8 million, compared to a net profit of US$283.5 million for the same period a year ago.

Revenue was up 2.4 per cent at US$6.8 billion.

Revenue contribution from the shipping player's liner division plummeted 11.7 per cent year on year despite stronger volumes, to US$1.9 billion from US$2.2 billion previously as revenue per FEU (forty-foot equivalent unit) came in 19 per cent lower during the quarter from a year ago.

The division was in the red even without factoring in interest and taxes, to the tune of US$88 million.

In response to the division's weaker performance, NOL group CEO Ng Yat Chung said: 'The liner shipping industry is faced with slowing trade demand, excess capacity and fuel costs that are significantly higher than a year ago. Our urgent priority is to drive down costs and increase efficiency.'

On a brighter note, the group's logistics business reported contribution of US$333 million, up 10.3 per cent from Q3, 2010.

'We achieved our highest average weekly revenue ever during the third quarter and we continue to invest for growth,' said APL Logistics president Jim McAdam about the performance of NOL's logistics arm.

However, earnings before interest and taxes (Ebit) of NOL's supply chain management business fell by 11.1 per cent to US$16 million due to a higher cost base.

Looking ahead, NOL expects to post a loss for the full year of 2011 on the back of continued low freight rates and slowing trade demand.

In th stock market yesterday, the shipping stock closed one cent or 0.9 per cent lower at $1.14.

[dydx]

Shipping is indeed a tough cyclical business. Is it fair to say that out of every 10 years, there are probably only 2 years of sunshine, with the other 8 years of bad or even stormy weather!

[cookieguy]

like many of you, i was not too impressed with nol's recent change in management. even more questionable is the huge capex it plans to make. given that container volume and freight rates are projected to only be 'stable', with no known catalyst for growth, this huge capex spending appears unnecessary. in addition, nol's ships are not that old to be require replacement. new CEOs normally come in to cut cost. this fella come in to make such bold and seemingly foolish expansion plans.

right now, dry bulkers have a much better long-term value proposition, especially those with long-term charters. the bdi will start climbing again once all the supply has come onboard in 2 years' time, assuming moderate global gdp growth. when these charters expire, ship owners may be able to recontract at the same high rates four years ago. container vessel rates might come under pressure when the current orders are delivered in 2 to 3 years time.

I fully agree with you the internal management problem of NOL....and the fact that NOL gearing is set to rise by few folds due to the purchase of vessels at the wrong timing. Moving forward, freight rates plummet from 2010 high based on Shanghai containerised freight index (set to continue the decline in 1Q 2012 forecasted) and high bunkering costs. To make matters worse, we see decline in rates for Asia-Europe, Asia to US routes due to eurozone crisis and Americal fiscal policy respectively.

Now NOL, with this new guy onboard, pledge to focus on reducing cost as the company expects to make FY loss. Isn't it shooting themselves in their foot when they could have done their due diligence earlier?

The good thing is....the top few shipping carriers have started to reduce their capacity since last month - for example Mitsui and Yusen.

It will take some time before demand starts picking up. Nominal capacity vs. deployed capacity - you will know which is more.

2012 is set to be bleak year for the container shipment industry, given the current conditions now. It will take some time before things improve.

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Shipping is indeed a tough cyclical business. Is it fair to say that out of every 10 years, there are probably only 2 years of sunshine, with the other 8 years of bad or even stormy weather!

Yes, it is tough. Probably thats the reason why we enjoy watching Pirates of the Carribean movie? Because of the stormy sea, unpredictable nature and the actions behind it

I hope NOL will not be a Jack Sparrow! haha...

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I think the Edge magazine this week did a write up to explain NOL reason to purchase new ships: Cheap financing, replacing ships that are chartered with the new ships if demand does not picks up and maintain market share.

But true enough, anyone know how to short these companies? haha. I would be keen to explore mid term (2-3 years) put options on container shipping companies.

Sadly...these carriers are chasing market shares (thus buying more ships) than profitability and now going into a crisis of overcapcity and falling demand.

[Temperament]

NOL used to be one of my "favorite". If you have deep pocket and patience you should be able to ride NOL over the Ocean. i was crazy i used to "trade' NOL when it was below a $1. If i more B/H to ride the cycle i will be many times richer. Well, you always know what to do from "rear view driving". But i did ride at least 1 cycle in the good old days; where the world had not "Globalised" and the cycle was not so complicated. Until today NOL is one counter that give me happy memories. The market has "globalised" i think the cycle has changed to be much more complicated. Invest at your own risks and understanding of the shipping cycle. i gave the last cycle a miss because i switch more to dividend income stocks. Or maybe i am afraid now to lose my capital. At 63, i may not able to ride the shipping cycle anymore.
On the other hand, an old sailor never really retired. i am still tempted.

[intellect]

Sadly...these carriers are chasing market shares (thus buying more ships) than profitability and now going into a crisis of overcapcity and falling demand.

They have no choice unless all of them agreed to remain status quo.
In the last downturn, one of the shipping line reduce capex and end up losing part of its market share.
Therefore this time round, nobody 'dare' to reduce capex for the fear of been squeeze out of the market.
The only way out is to see who has deeper pockets and can outlast, outplay their competitors. Recently, one of the shipping line in Malaysia has throw in the towel and this is good news for the rest of the players.
Until there is further consolidation in the industry, shipping lines will continue to bled unless there is a sudden upward in the global economy which is unlikely for the next few quarters.

So in the meantime, sit tight and see how the drama unfold.
Like what Temperament has advocated, Timing and Understanding of the shipping cycle is paramount important if you want to invest in this stock.

[corydorus]

If the Price drives below reasonable profit, it maybe a matter of time when those ship loans catches up with them.
Will we see industry consolidation. Who is in best position to ride them out ?

[intellect]

If the Price drives below reasonable profit, it maybe a matter of time when those ship loans catches up with them.
Will we see industry consolidation. Who is in best position to ride them out ?

My guess are those big industry players like Maersk, MSC, CMA CGM, etc, etc
As for NOL, let see how the drama unfold after MISC has throw in the towel last week.

[Temperament]

Me think NOL can not follow MISC. Why? i think NOL is our only "National Shipping Line". Singapore may be able to survive without SIA but not without NOL. In time of wars or chaos, who will be our National Shipping Line? Pardon, i may be wrong. Like to hear alternative views.